Embryonic stem (ES) cells deficient in the enzyme poly(ADP-ribose) polymerase (Parp1) develop into teratocarcinoma-like tumors when injected subcutaneously into nude mice that contain cells with giant cell-like morphology. We show here that these cells express genes characteristic of trophoblast giant cells and thus belong to the trophectoderm lineage. In addition, Parp1(-/-) tumors contained other trophoblast subtypes as revealed by expression of spongiotrophoblast-specific marker genes. The extent of giant cell differentiation was enhanced, however, as compared with spongiotrophoblast. A similar shift toward trophoblast giant cell differentiation was observed in cultures of Parp1-deficient ES cells and in placentae of Parp1(-/-) embryos. Analysis of other cell lineage markers demonstrated that Parp1 acts exclusively in trophoblast to suppress differentiation. Surprisingly, trophoblast derivatives were also detected in wildtype tumors and cultured ES cells, albeit at significantly lower frequency. These data show that wildtype ES cells contain a small population of cells with trophectoderm potential and that absence of Parp1 renders ES cells more susceptible to adopting a trophoblast phenotype.